Robinhood agrees to pay a $ 65 million fine for misleading customers

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In particular, the regulator said that Robinhood did not disclose “receipt of payments from trading firms for forwarding customer orders to them, and has failed to fulfill his duty to seek the best reasonably available terms to execute customer orders.”

The SEC said Robinhood benefited from completing transactions at prices that were not optimal for its clients. In total, those fees robbed customers of $ 34.1 million, even after factoring in the savings from the commission-free transactions.

The regulators said the fraud occurred at a time when Robinhood’s trading app was rapidly growing in popularity. The company added 3 million funded accounts between January and April alone, a growth spurt of 30%, according to a previous statement from the company. About half of those new users were new investors.

“Robinhood has provided customers with misleading information about the true cost of dealing with the company,” said Stephanie Avakian, director of the SEC’s enforcement division. “Brokerage firms cannot mislead customers about the quality of order execution.”

Robinhood settled the case without admitting guilty, saying it changed the practices cited in the complaint. The company claims to have significantly improved its practices and said it has built relationships with other market makers to ensure the best possible trades for its customers.

“The settlement pertains to historical practices that do not reflect Robinhood today. We recognize the responsibility that comes with helping millions of investors make their first investments, and we are committed to continuing to develop Robinhood as we grow to meet the needs of our customers. ”said Dan Gallagher, Robinhood’s legal director.

But the fast-growing company has been criticized for other practices this year.

Regulators are turning down Robinhood because it targets budding investors with aggressive marketing
Massachusetts securities regulators claimed Wednesday that the trading platform’s “gamification” is intended to encourage and entice continuous and repeated use of its trading app by its predominantly millennial clients.
The agency said Robinhood is in violation of state laws and baseboard regulations by not taking steps to protect its customers and protect its system from the dozens of outages and outages caused by the rapid growth this year.

Robinhood said it disagrees with the state’s allegations and plans to “vigorously” defend itself. The company said it has improved its trading options, added more safeguards, and improved educational materials.

“Millions of people have made their first investments through Robinhood, and we continue to focus on serving them,” the company said in response to the Massachusetts complaint. “Robinhood is a self-driving broker-dealer and we do not make investment recommendations.”

In July, US lawmakers criticized Robinhood after the apparent suicide of a 20-year-old student who saw a negative balance of $ 730,000 in his account, which turned out to be incorrect. The company pledged to work with legislators to improve safeguards.

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